LUTA HAMUTUK - 15/11/2010
The Institute of Luta Hamutuk appreciates the efforts of the government to amend the law of petroleum fund as to benefit national development, however it should always reflected International Best Practices. Because the petroleum fund system which we adopted currently reflected control of balance, distribution of roles and not to a person or an institution.
What a good reality is that when the law of petroleum fund approved in 2005, there was broad consultation to various entities including the community and the law was then an-unanimously approved in the National Parliament. In contrary current consultation is made to small number of people or elites only and does not reflected the spirit of an-unanimous manner, this is indicating the government is not consistent to the best practices that we had in the past.
What preoccupation of Luta Hamutuk is that current global financial crisis has not been recovery and yet to know when will last. Therefore the amendment of petroleum fund law in particular article 15 of investment regulations should be considered various aspects and not just looking forward on how to get lots of money and spent it. We should not rash as this is a long term investment. In years in the past when we established petroleum fund law Timor Leste’s Petroleum Fund System ranked 3rd best worldwide. However in the year of 2008 to 2010 research by Edwin M. Truman from Peterson Institute that was published on (www.petersoninstitute.or ) showed that Timor Leste’s Petroleum Fund had ranked 10 worldwide. According to the research of this Institute there are 4 principal components that they measured such as for structure is 100, governance is 43, accountability and transparent is 100 and attitudes and behaviours is 75.
Luta Hamutuk would like to convey its perspectives and strong position toward government proposal to amend the law no 9/2005 of petroleum fund in particular to the following articles such as; 2, 9, 11, 12, 14, 15, 17 and 24.
PERSPECTIVES AND POSITION OF LUTA HAMUTUK
1. Article 2.1. i; in the government proposal says that; ”Operational Manager” means the Central Bank or any other public entity established by the National Parliament to manage the Petroleum Fund.
It would be good to maintain the operating manager which currently is doing by Banking and Payment Authority/BPA (future National Bank) so that should not need to establish other public institution to be the operating manager. As Timor Leste have had lots of public institutions established but hardly to see its accountability.
Further, Banking and Payment Authority have had experienced during 5 years and showed that they have the capacity and integrity to manage the petroleum fund.
2. Article 9.d.; propose to amend from the Government says: ‘Justification as to the reason why it is in the long term of Timor Leste to transfer an amount exceeding the Estimated Sustainable Income”.
There are two similar alternatives such as maintain the original text or do not amend the current existing law. Because general state budget is also kind of domestic investment and therefore it requires detail explanation on how getting interest after withdraw more than Estimated Sustainable Income. The profit or interest could be in an economic and social. As of that Luta Hamutuk does not agree over the government proposal that is more as justification of motive but not what we will have in return when withdraw more than Estimated Sustainable Income (ESI). The money is not just expending but invested onto general state budget.
Another alternative that it could be removed point “d” from article 9 and it is much better to have increases Estimated Sustainable Income from 3%-4%. However this article could have so many interpretations as it depends of interest. Therefore Luta Hamutuk suggested based on the law provisioned for the government could increases from 3% to 4%, and depends of the real interest from financial investment and capacity to execute general state budget.
3. Article 12.2.a; External Investment Managers.
Government proposes to amend: “The external Investment Manager is a legal person with sufficient equity capital and adequate guarantees and insurance against operational risks”. External manager is not a legal person but it is a legal collective person or institutions. It should clearly mention in the law to avoid various interpretation in the future.
4. Article 15; Investment Roles.
Government proposes to amend percentage for investment to an obligation 50% and Equities 50%. The change brings quite significant risk into petroleum fund. Because as we all know that currently the world still facing global financial crisis but this changes has an objective of long term investment and therefore Luta Hamutuk think that there are two options for withdrawing; firstly not to change the current existing law (9/2005 petroleum fund) 90% obligation and 10% equities. We can only change obligation to diversify into different currencies (not just US Dollar), secondly is 75% invested to diversification to other currencies (not just US Dollar) and 25% invested into equities through commercial Bank that operated in Timor Leste, aiming that Central Bank/BPA has its function to control commercial bank operates in the country.
Another 5% invested onto real estate it is better to change or amend because other countries experience showed that (example: Nauru) which have had fallen into the resource curse as of wrong investment. This experience also indicated there is high risk of this kind of investment; we should also very careful to consider criteria and standard for companies based on current law.
5. Article 17; Investment Advisory Board (IAB).
It indicates in the amendment proposal that Prime Minister appoints three people member of Investment Advisory Board (IAB), and another two that is one from treasury and BPA due to their nature of work they are automatically become member of IAB. Luta Hamutu’s point of views that it is much appropriate to keep IAB as an independent organ and two members can be appointed from Ministry of Finance and one person from National Parliament. As to keep member of IAB from political intervention since this is technical position.
RECOMMENDATION
A. Government from Ministry of Finance that:
1. Ministry of Finance to have a wide public consultation about the amendment of the law and seeks consensus from all entities and political parties.
2. Whatever amendment made should accordance to the Constitution of Republic article 139 on Obligatory of Financial Reserve.
3. Execute 75% for diversification of investment into other currencies and 25% to equities including equities from Banks operate in Timor Leste in gradual mode not at once. It is so to minimize risks as the Central Bank/BPA can control.
4. Investment should be made with Institutions that legal collective person applied not legal individual.
5. Investment Advisory Board must keep its independent to provide advisory to the Ministry of Finance.
6. Operating Manager should keep trust to the Banking and Payment Authority/BPA (future Central Bank).
B. National Parliament:
1. There is need to find consensus for approval of amendment of petroleum fund law and not approved as what majority willing to, as the funds as resources of the state and unique resource for the functioning of national development.
2. National Parliament as representative and the guidance of the people of Timor Leste must develops and creates investment guidance for using petroleum fund so that it will not be invested to the investors whom have violations of human rights and arms industries.
Dili: 11 de November 2010
Mericio Akara
Director of Luta Hamutuk
Tel: (+670) 724 3966
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